August 31, 2017
There’s a lot of noise surrounding the NAFTA re-negotiations (or as Mexico and Canada like to frame it, the “modernization”). Through all the media, analysis, lobbying and politics, it is easy to get lost in the hype of it all. But what is most crucial as we head into round 1 of talks on September 1st is separating the rhetoric (largely those in political roles making loud statements) and the reality (the pieces on the negotiating table, the legal elements, and the items of interest to the business community).
Let’s start with the overall agreement. The introductory round of negotiations held in Washington D.C. in mid-August started with a bang. United States Trade Representative (USTR) Robert Lighthizer was quick to go on the attack stating that this would not merely be a “tweaking” to improve NAFTA, but would be a full scale re-write. His statements contrasted with the USTR’s written objectives for NAFTA that were released in mid-July that indicated a more nuanced and conciliatory tone.
Shortly after the introductions wrapped up, President Trump took to the airwaves to state his doubt that NAFTA could be renegotiated because Canada and Mexico were being difficult. In his view, the negotiations would end in NAFTA being terminated. This fits squarely into the rhetoric side of things for so many reasons that it is more economical to list them:
- It’s blatantly pandering to populist sentiment (seemingly among a small minority) and sticking to his guns.
- It’s a well-known negotiating tactic of the President’s in his business dealings (do what I want or I’ll walk away). Unfortunately, the threat is a little more empty in negotiations between sovereign nations that don’t represent one particular business dealing, but rather with creating an environment for prosperity.
- Business associations in Canada and the U.S. have both been lobbying to keep, and modernize NAFTA. Terminating the agreement would alienate not just those outside the U.S. border, but a huge agglomeration of interests within it, including droves who voted for Trump.
- Terminating NAFTA does not end “free trade”. The Canada-US Free Trade Agreement of 1988 would likely remain in force. Modernizing NAFTA would surely be better for both sides than reverting to pre-NAFTA trade times.
- The President is not all powerful in the United States. It is being debated whether the U.S. Congress (made up of a House of Representatives and the Senate) would need to agree to terminate NAFTA. Trump is hardly in their favour, let alone within his own political party at the moment.
On the Canadian side, there is also a fair amount of rhetoric, but it is more to do with our position on certain elements of NAFTA rather than generally degrading the agreement in its entirety or deriding one of the other parties for being unfair. There’s a lot of talk about how we won’t negotiate on dairy and we are not budging from the chapter 19 dispute settlement mechanism. While there is an element of truth to this, the rhetoric is stronger than the reality. Canada will likely negotiate at least as favourable terms as are contained in both the TPP and CETA, meaning we will be somewhat flexible on both of those items. But rhetoric is ensuring we hold our cards close to the chest.
Now that the drum beating is dealt with, let’s move to reality. Overall, the political conditions in the United States are more favourable to the renegotiation of NAFTA. Most state level governors are keen on NAFTA and want to see a functional agreement emerge from the negotiations. Furthermore, the deeper you go into the heart of American politics, the more they seem to understand that the details of NAFTA should be worked out by the appropriate levels of government (i.e. the negotiators hired at the bureaucratic level to spend their lives doing trade agreements).
In reality’s corner we have the business community and their associations, state level governors, Canada and Mexico (in terms of their willingness to negotiate). In rhetoric’s corner we have Lighthizer, Trump, and some position statements by Canada that will likely be softened to reflect reality.
Round 1 is sure to produce some made-for-journalism drama. We will try and sort the rhetoric from the reality at its conclusion to give a sense of what is being negotiated.
You can reach Noah via everydaytrade.ca